Avis Europe. A fresh look on our business. 20

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ANNUAL REPORT 2009 | AVIS EUROPE plc
Avis Europe.
A fresh look on
our business.
“I am pleased to report that Avis
Europe delivered a very strong
result for 2009 in what was an
extremely difficult economic
environment, reflecting a resilient
volume performance, good increases
in rental revenue per day, a stepchange improvement in utilisation
and significant cost savings. At the
same time the reduction in fleet and
strong cash management drove a
substantial reduction in net debt of
EUR 375 million. Underlying operating
margin was ahead by 30 basis points
and return on capital employed
improved by 140 basis points.
These results position Avis Europe
strongly for 2010 and beyond.”
Pascal Bazin, CEO Avis Europe.
AVIS EUROPE plc
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ANNUAL REPORT 2009 | AVIS EUROPE plc
Fleet management:
maximising utilisation.
ALEXANDER LOUCOPOULOS:
“One key area of our strategy for
2009 against this very difficult
trading environment was to drive
a step-change improvement in
utilisation*. We needed to optimise
the use of our cars to serve our
customers in order to maximise
our profitability, reduce our capital
employed and drive positive cash
flow for the group.
This is what we achieved in 2009
with a gain of some 4% pts in
utilisation. The main drivers behind
this significant improvement
compared with previous years were
structural changes to the way we
manage the fleet, supported by its
overall size reduction. In particular
we improved our forecasting and
optimisation of fleet levels using
our now fully-developed revenue
management system. We reviewed
our operational processes to
reduce “on-rent” downtime –
for example repair, maintenance,
preparation and defleeting –
and extended holding periods in
certain markets, which reduced
the amount of time taken to
bring cars on and off the fleet.
Alexander Loucopoulos, Fleet Director, France.
Finally the key success factor was
the total alignment and commitment across all the corporate
countries in the group to reach our
target − from senior management
down to the stations. ”
* The amount of time that a car is “on-rent” and earning rental income.
AVIS EUROPE plc
ANNUAL REPORT 2009 | AVIS EUROPE plc | 23
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ANNUAL REPORT 2009 | AVIS EUROPE plc
Key figures.
Continued volume resilience: like-for-like1 reduction in volumes limited to 8.4%, supported by
brand leadership, service differentiation and geographic diversification. | Proactive pricing actions
improved reported rental revenue per day by 2.4% in the second half and 0.7% for the full year,
despite negative impact of mix. | Rental income2, 3 down 11.6% to EUR 1,159.6 million. | Rigorous
cost reduction of EUR 149 million, including step-change improvement in utilisation of 3.9% pts. |
Underlying operating margin4 improved from 8.6% to 8.9%. | Current operating result3 down 8.3%
to EUR 103.4 million. | Current result before tax, group’s share,3 down 7.1% to EUR 20.9 million.
| Strong focus on cash management leading to EUR 375 million reduction in year-end net debt
versus 2008.
FINANCIAL HIGHLIGHTS
EUR million
2009
2008
CHANGE
1,392.7
1,665.7
-16.4%
103.4
112.7
-8.3%
4
Current operating margin
8.9%
8.6%
–
Current net finance costs
-68.3
-75.1
9.1%
Current result before tax
35.1
37.6
-6.6%
Current result before tax,
group’s share
20.9
22.5
-7.1%
-44.4
-278.4
–
2
External sales
Current operating result
Unusual items & re-measurements,
before tax
Note: the average shareholding used for consolidation of the result of Avis Europe in 2009 is 59.72% (59.74% in 2008).
GEOGRAPHICAL SALES BREAKDOWN
PERFORMANCE INDICATORS
14%
24%
Rentals1
-9.7%
Rental length
16%
Billed days
13%
1
Rental revenue per day5
16%
CHANGE
1.5%
-8.4%
0.7%
17%
GEOGRAPHICAL SALES EVOLUTION
CHANGE1, 5
● France
-7%
● Spain
-17%
● Italy
-9%
● Germany
-4%
● UK
0%
● Other
Insurance/
replacement
11%
Corporate
34%
Individual
55%
–
1. Like-for-like measures comprise only those corporately-owned and agency rental stations that were in operation throughout all of the current and comparative year.
2. Restated in 2008 following amendment to IAS 16, external sales now include rental income and the disposal proceeds of non-repurchase vehicles (for further details, see note 2.1 of the Consolidated Financial Statements in this annual report).
3. As reported by D’Ieteren.
4. Underlying operating margin is calculated as underlying operating profit divided by rental income.
5. At constant currency.
ANNUAL REPORT 2009 | AVIS EUROPE plc | 25
| 01 | | 02 | LAUNCH OF AVIS FLEX.
Avis Flex is a new rental product to
satisfy increasing demand for greater
flexibility from corporate customers.
These customers can now rent a vehicle
for more than 30 days.
| 03 | ENTRY INTO VIETNAM. Avis
became the first leading global car rental
company to operate in Vietnam with the
opening of a licensee operation in Hanoi.
GREATER SYNERGIES BETWEEN
THE AVIS AND BUDGET BRANDS.
| Optimisation of the synergies between
the Avis and Budget corporately-owned
operations in Switzerland, Austria,
France and the UK, including combining
rental facilities and sharing fleet and
infrastructure. | 04 | CONCLUSION
OF EXCLUSIVE PARTNERSHIP WITH
BRITISH AIRWAYS until 2014, under the
banner “Be There Sooner”.
| 05 | FURTHER EXPANSION IN
CHINA. Avis China now operates in 20
cities through 26 rental stations, with plans
to increase its presence further in 2010.
| 06 | EXPANSION OF OKIGO.
During 2009, OKIGO, Avis’ car-sharing
initiative undertaken jointly with Vinci
Park, extended its offer to new services.
It now gathers around 2,500 members.
| 07 | FURTHER SUCCESS OF THE
“3MINUTE PROMISE”. This year,
approximately 75% of all Avis Preferred
rentals within Europe took place at one
of the 500 3-minute locations in France,
Germany, Spain, the UK, Portugal and
Switzerland. The service was also extended
to the Czech Republic.
| 08 | | 09 | AWARDS. Avis Europe won
a series of prestigious awards across its
network, including ‘Europe’s Leading
Business Car Rental Company’ at the
World Travel Awards and the Travel Trade
Gazette’s ‘Car Hire Company of the Year’.
| 10 | INTRODUCTION OF
NONCANCELLATION FEE.
This fee was introduced in July this year
to further improve utilisation. Customers
are asked to give advance notification of
their intent to cancel a reservation, thereby
making the car available for another renter,
or pay a fee.
01
02
03
04
05
06
07
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09
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AVIS EUROPE plc
Key events 2009.
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ANNUAL REPORT 2009 | AVIS EUROPE plc
Resisting adversity.
Current result before tax, group's share:
EUR 20.9 million, down 7.1%. Very strong
performance as the strategic positioning
and the rigorous execution of the plan for
recession mitigated the declining markets.
The following extracts are taken from the 2009 Annual report by Avis Europe plc.
Activities and results
“Rental income1 was 11.5% lower at
EUR 1,162.4 million, reflecting the global
recessionary conditions. Revenue from
the corporately-owned business segment
was 11.5% lower at EUR 1,119.2 million in
reported currency and 10.0% lower on a
constant currency basis.
Overall billed days were 10.3% lower and
8.4% lower on a like-for-like2 basis, excluding the impact of network actions which
involved the closing and licensing of
over 200 stations. The reduction in billed
days primarily reflected a lower number
of rentals and was partially offset by an
improvement in rental length, which Avis
Europe had actively managed through its
revenue management function.
Reported rental revenue per day was
0.7% higher at constant currency and
1.0% lower on a reported basis. Excluding
the effects of car and customer mix and
rental length, pricing was ahead by 2.0%,
being 1.0% in the first half and 2.8% in
the second half. With a very tight control
over fleet capacity, Avis Europe continued
to increase prices where practicable
throughout the year, achieving particularly
good gains during the key summer trading
period.
Revenue from Avis Licensee countries
was 7.1% lower on a constant currency
basis and 10.1% lower on a reported basis
with reductions in most regions reflecting
the weaker global economic conditions.
Budget Licensee revenue was 3.9% lower
excluding foreign exchange effects, reflecting restructuring in the German network
during the year. Excluding Germany,
underlying revenue was ahead by 1.6% as
continued growth of the diverse network
offset difficult trading conditions. On a
reported basis, revenues were 18.9% lower.
Revenues from the corporately-owned
operations were EUR 145.3 million lower
at EUR 1,119.2 million, reflecting the
challenging economic environment.
Underlying operating profit was only
EUR 5.5 million lower at EUR 68.1 million,
as Avis Europe fully flexed the variable
elements of its cost base and made a
number of structural reductions in fixed
costs. It lowered fleet costs by EUR 67.8
million or 14.5% by strategically reducing
fleet capacity in anticipation of lower
demand, the closure and licensing of
certain rental locations, and by driving
significant improvements in utilisation
through specific operational initiatives.
In addition, overall fleet costs benefited
from more stable used car markets in
2009, which were supported by scrappage
laws particularly in Germany and the UK.
Conversely, in the prior year, fleet costs
were impacted by particularly weak used
car markets in Spain and the UK. Staff
costs were EUR 22.1 million or 7.8% lower
reflecting: the full year effect of 2008
redundancies; a 5% reduction in group
headquarter staff; further restructuring
actions particularly in Germany and
Spain; and optimisation of synergies
between Avis and Budget corporatelyowned operations. This was further
reinforced by an extended recruitment
freeze. Underlying operating margin3 on
continuing operations was 8.9%, being
0.3% pts higher and reflecting the benefits
of the significant cost reductions to
mitigate lower revenues outlined above.
Underlying net finance costs were 9.1%
lower at EUR 68.3 million. As Avis Europe
maintains a fixed level of committed
liquidity facilities, the benefit of significantly lower average net debt was partially
offset by the resulting higher average gross
cash deposits being held throughout most
of the year. The group continued to be
substantially hedged in the short-term,
therefore limiting the effect of lower
market borrowing rates. The resultant
effective underlying finance rate was 7.0%
(2008: 6.2%), and before the effect of gross
cash balances was 6.7%.
Net exceptional charges before taxation of
EUR 29.5 million were incurred in the year.
Restructuring costs of EUR 14.0 million
were recognised, reflecting the rationalisation of the operations which commenced
in the prior year. Actions included
headquarter redundancies, the closure of
certain low margin rental locations and
vacant property provisions following the
relocation of the headquarters of the UK
business into the group head office. In the
prior year, restructuring costs of EUR 27.6
million included EUR 1.9 million incurred
in respect of a redundancy programme
that commenced in December 2007.
During the year, Avis Europe took the decision to combine the corporately-owned
operations of Budget with the respective
Avis businesses. Restructuring costs of
EUR 7.8 million were recognised including
redundancies, the rationalisation of certain
rental stations to reflect synergies with
Avis, and vacant property provisions. During the year, it developed and prepared a
structure for a potential securitisation of
the fleet. Advisory, legal and other costs
were incurred in the development of
corporate and operational structures.
Operational review
Avis Europe’s strategic positioning and the
rigorous execution of its plan for recession
mitigated weaker market conditions,
enabling it to deliver a very strong
performance in 2009. In response to lower
volumes in the year, reflecting the global
recessionary conditions, Avis Europe
took early and substantial actions to
protect its profitability, improving pricing,
significantly reducing costs and achieving
a step-change improvement in utilisation.
Resilient volume performance
The geographic and customer diversification, as well as the brand leadership and
service differentiation, helped to support
volumes in the face of exceptionally weak
demand. This resulted in volumes being
only 8.4% lower on a like-for-like2 basis.
Second consecutive year of improved
pricing
During the year Avis Europe placed a daily
1. Restated in 2008 following amendment to IAS 16, i.e. external sales now include rental income and the disposal proceeds of non-repurchase vehicles (for further details, see note 2.1 of the Consolidated Financial Statements
in this annual report). | 2. Like-for-like measures comprise only those corporately-owned and agency rental stations that were in operation throughout all of the current and comparative year. | 3. Underlying operating margin
is calculated as underlying operating profit divided by rental income.
operational focus on achieving further
pricing gains to mitigate lower volumes.
In particular it kept a very tight control
over fleet capacity, reducing its fleet more
than the fall in volumes, to enable to
increase prices where practicable. For the
year as a whole, Avis Europe achieved a
0.7% improvement in rental revenue per
day at constant currency.
Rigorous cost reduction and stepchange improvement in utilisation
Avis Europe took substantial and early
actions to reduce costs to mitigate the
impact of recessionary conditions on its
profitability. Throughout the year, it managed its fleet levels very proactively and
on a conservative basis, allowing to reduce
capacity beyond the fall in volumes in
the very uncertain trading environment.
Together with operational efficiencies, the
introduction of a non-cancellation fee and
the extension of some holding periods,
this resulted in a significant improvement
in utilisation of 3.9% pts.
Outlook 2010
In summary, these actions and results
position Avis Europe very strongly in
anticipation of any volume recovery in
its traditional core businesses in 2010
and beyond. In the short term, given the
continuing uncertain trading environment
and consequent limited visibility in the
markets, Avis Europe will maintain its
present prudent approach for the current
year. It anticipates a slightly positive
volume performance for the year and is
working towards a further improvement
in pricing.
Avis Europe will still keep fleet capacity
tight and continue its ongoing focus on
driving greater efficiency to mitigate cost
inflation. The interest charge, excluding
any additional cost of a refinancing that
is likely to be undertaken later in the year,
is expected to benefit from lower rates as
existing hedging matures.
Avis Europe has ensured that it has
sufficient liquidity for the next 12 months,
will retain its tight control of capital to
maintain debt at broadly the level of 2009
and, from the actions outlined above, is
well positioned to continue to make good
progress in 2010.”
End of extracts.
Brand Leadership and Service
Differentiation. In 2009, Avis Europe was
internationally recognised for outstanding
customer service in a series of prestigious
awards including ‘Europe’s Leading Business
Car Rental Company’ at the World Travel
Awards and the Travel Trade Gazette’s ‘Car
Hire Company of the Year’. The company
was awarded these top accolades thanks to
its outstanding global service.
Avis Europe always strives to improve
the customers’ travel experience. Being
recognised by the most prestigious awards
across the board is a reflection of the
premium car rental service that it offers.
Avis services are designed in response to
customers’ demands for speed and transparency and include a complimentary
priority service – Avis Preferred – which
promises to deliver customers their keys
in under three minutes. The “3-minute
promise” is now available at over
500 locations across the network.
In addition, customers benefit from a
“Rapid Return” service that enables the
return of a rental car in just 60 seconds.
“We are thrilled that Avis has been
recognised by the most prestigious
awards across the board. They are a
reflection of the premium car rental
service that we strive to offer all of our
customers and we are very proud of the
success that the company has achieved
both here in Europe and internationally.”
| Wolfgang Neumann, Group Commercial
Director for Avis Europe.
AVIS EUROPE plc
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ANNUAL REPORT 2009 | AVIS EUROPE plc
Always trying harder...
OUR ENVIRONMENT
Avis Europe’s Corporate Social
Responsibility (CSR) strategy is an integral
part of its “We try harder.” philosophy.
Avis Europe remains committed to
reducing its impacts on the environment,
of which the largest is greenhouse
gas emissions. Since 1997, it has offset
greenhouse gas emissions through
innovative renewable energy and energy
efficiency projects, as well as reforestation.
In 2009 an increasing number of its
licensees participated in CarbonNeutral®
programmes. The European corporatelyowned operations maintained their
CarbonNeutral® status and their emissions
amounted to 13,517 tCO2e, a reduction
of 8%. In order to offset these emissions
Avis Europe has worked with The
Carbon Neutral Company to purchase
offsets from a variety of independently
validated and verified clean and renewable
energy projects around the world. The
corporately-owned operations also
focused on developing and completing
a series of initiatives to improve
environmental performance, including:
With regard to the environment, Avis
Europe’s strategy is to measure the
effect that its business operations have
on the environment and lower the
impact progressively. It has developed
a comprehensive environmental
programme to ensure it gradually reduces
the CO2 emissions in its premises, offset
non-reducible emissions, continue to
introduce less polluting vehicles onto the
fleet and encourage its customers and
partners to offset their emissions.
On community matters, Avis Europe’s
corporately-owned operations focus
their efforts on the provision of vehicles
for community purposes and local
environmental improvements, whilst local
management have discretion to support
local staff volunteering and fundraising for
causes of their choice.
> completing the implementation of
recommendations to achieve further
internal emissions reductions, following
a number of environmental audits of
headquarters and major rental locations
undertaken in the prior year;
> making better use of resources and
continuing to make all staff aware of
what they can do to reduce energy use,
including the use of e-learning to reduce
travel;
> reducing European travel by around
30%, partly through the development of
e-learning tools to replace face-to-face
training and greater use of videoconferencing;
> introducing car sharing at a number of
its head office locations;
> developing closer links with
customer groups to help reduce their
environmental impact, including a
carbon offset tool for both Individual
and Corporate customers.
ANNUAL REPORT 2009 | AVIS EUROPE plc | 29
OUR FLEET
> During 2009 Avis Europe continued
to minimise emissions from the fleet
by introducing more environmentally
friendly vehicles in more locations,
despite the difficulties in the car
manufacturing sector and the resulting
reduction in model availability.
> Towards the end of 2009 Avis Europe
launched a new low emission AVIS ECO
collection in the UK − guaranteeing
customers a fuel efficient, sub-120 CO2
emission diesel model every time they
rent a car from the new collection.
> A number of countries have
implemented or are beginning the
roll-out of a car Delivery and Collection
optimisation system aimed at improving
the efficiency of their downtown
network. Through optimising the
scheduling of Delivery and Collection
tasks, the system helps reduce emissions
by minimising the mileage driven by
Avis drivers.
> In Paris the OKIGO initiative, in a joint
venture with Vinci Park, Europe’s leader
in complete car parking solutions, allows
customers who pay a subscription
to have an Avis car available 24/7 in
one of the many Vinci car parks.
A significant increase in the number of
customers included the extension of the
AVIS EUROPE plc
Avis Europe focused its efforts on four
main areas:
programme to universities. Studies show
that sharing a car in this way effectively
replaces up to eight individual cars.
Avis Europe has now also signed a
partnership with Vinci Park, the Paris
metro and SNCF (the leading French
railway company) to facilitate the
operation of a public car-sharing scheme
with 4,000 vehicles in Paris in 2010.
OUR COMMUNITIES
Avis Europe’s community investment
guidelines provide that it focusses on
local environmental improvement and
provision of free transport for community
activities. In 2009, amongst many other
initiatives, Avis Europe was able to
help the distribution of emergency aid
following the earthquake in Abruzzo in
central Italy.
In addition to this activity across its
corporate and licensee network, it
supports UNICEF on a variety of projects
and also initiatives which are particularly
important to local staff.
Some of the 2009 projects have included:
> A variety of fundraising activities for
a cancer care charity (Macmillan) in
the UK;
> Fundraising for the Portuguese
Association for the blind (ACAPO);
> Staging a theatrical performance in Italy
to raise funds for the pediatric oncology
unit in Rome General Hospital;
> Partnership with act!onaid to provide
educational and cultural activities to
disadvantaged children in Brazil.
In addition, Avis Europe supports
employee volunteering and fundraising:
> where staff commit to voluntary
work for a charitable organisation in
Barcelona, the Avis contact centre
makes a quarterly contribution; and
> in the group headquarters, Avis Europe
matches sponsorship funding for
individual and team efforts.